Pension Funds & Retirement Plans - Pension Scheme Calculator

How to Handle a Pension Plan

With the advent of the Pension Benefit Guaranty Corporation (PBQC) in 1974, small business owners found greater incentive to offer their employees solid retirement plans. The Pension Benefit Guaranty Corporation encourages the maintenance of these retirement plans and can act as administrator should the money come up short. Even without the help of the PBQC, however, many entrepreneurs who want to provide their key employees with some security down the road are offering a pension plan. Once you've decided to offer a pension, you'll have several options. Three of the best options for pension and benefits are 401(k), SEP IRA plans, and SIMPLE IRAs.

Choosing Your Pension Plan

There are a few factors you'll need to consider when it comes to choosing among these three pension funds. As administrator, will you be matching your employees' contributions to the pension trust or will they be responsible for funding the pension fund? Will they even be able to contribute to the pension fund or will this simply be something done on your end? How much flexibility do you need in terms of how you can access the pension funds? By thinking about the answers to these questions, you'll be able to determine which pension trust is the right fit for your company.

The 401(k): Plan Description

By far the most popular retirement account for pension and benefits, the 401(k) gets its notoriety from being the one option that allows both business owners and their employees to make regular contributions, tax-deferred, for decades. But this is far from the only benefit of choosing the 401(k) as your company's private pension. As an owner, you can choose whether or not to provide a match for your employees, enable access without penalty, and even take advantage of "catch-up" contributions after the plan holder has reached 50.

SEP IRA: Plan Description

If you have doubts as to whether your employees will fund their own private pension accounts, you may want to choose the SEP IRA. It doesn't have the freedom and flexibility that 401(k) pensions offer, but financial experts agree that the SEP fund has it where it counts. The employer makes 100% of the contributions, so this isn't the plan for an employee base interested in greater control over his/her pension.

SIMPLE IRA: Plan Description

Many employers view the Savings Incentive Match Plan for Employees as a more restrictive version of the 401(k), but there's more to it than that. Employers and their employees can both contribute to the fund, although it does lock the employer into matching. Limits on employee contribution are set lower than they are with a 401(k), but there are reduced reporting options and fewer IRS tests, which can appeal to small business owners who want to keep pensions simple.

Unlike the UK, where the state pension takes care of workers, employees in the U.S. must find their own defined benefit plans. As an employer, you can attract a stronger workforce and encourage loyalty by eschewing state pension options and offering defined benefit plans that make sense.